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Avoid These 3 Simple Mistakes When Buying a Franchise

Avoid These 3 Simple Mistakes When Buying a Franchise
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Entrepreneurs and those with a desire to start their own business must deal with a daunting amount of technological, regulatory and operational challenges when launching a business in today’s market. The solution for many is to franchise. Securing a proven business model that provides the support and resources you need can increase the likelihood of success.

However, it’s important to remember franchising is not just about buying into an established business, rather it also includes a partnership that should have aligned outcomes and mutual investment for the entrepreneur and franchisor. To forge a business relationship based on trust and destined for success, the franchisee and franchisor should evaluate their potential partner against a specific list of attributes -- many of which are non-financial.

To help in the process, here are common mistakes that entrepreneurs make and tips to help avoid making those errors.

Mistake #1: Shortcutting the research. Before you dive headfirst into a franchise, you must be confident in the relationship. The prospect of making money can encourage new franchise owners to shortcut the research process, ultimately getting them in over their heads. 

Related: 5 Tips for Finding the Perfect Franchise

Tip: Put your back into the background check. Dig into the culture and history of the business. Do market research on the longevity potential of the franchise’s service or product A business based on a short-lived trend isn’t sustainable for the long haul, so knowing where you see yourself in 10 to 15 years and aligning that with your franchise goals is key to long-term gains.

Mistake #2 : Not checking for alignment of core values. If a franchisee is “in it for the money” without having determined if the company’s core values are aligned with his then the likelihood of having issues down the road increase dramatically.

Tip: Seek to understand the core values of the franchisor. Every company worth establishing a partnership with has rock-solid values. Get a feel for the franchisor by speaking with employees, other franchisees and partners to understand how they act when they are not trying to sell you a franchise. How will they act after you paid your franchise fee and when no one is watching?

Related: 16 Common Franchise Terms: Explained

Mistake #3 : Underestimating ongoing investment. When moving into franchising, you have to understand that this isn’t a one-time deal. You will have ongoing investments to support the partnership for so long as you operate your franchise in both time and money.

Tip: Figure out what investment is required to make your franchise fly…then double it.

Even if your investment is modest, you must be prepared to roll up your sleeves and be engaged with the entire business. Immerse yourself in the day-to-day execution to understand what will be expected of you long term. Similarly, when buying into a franchise don’t expect to do business your own way -- someone has already figured out how to make money and you have a higher chance of being successful when following the existing model.  In the franchise disclosure document, there will be an estimate of the amount of investment you may be required to make. Take a hard look at this and do the math -- then double it. 

Related: 10 New Franchises to Watch

Dan Duffy is the CEO and chairman of the board of directors at United Real Estate. Duffy is principally responsible for the establishment and execution of a long-term strategy for United designed to deliver competitive advantage to agents as they operate in their local markets and serve their clients.
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